Walmart: Master of the Supply Chain

Founded in 1962, Walmart now has 8,500 stores around the world (According to one study in 2006, 90% of the US population lives within 15 minutes of a Walmart).  Walmart employs over two million employees, (more than the population of 13 states) and generated over $400 billion in revenue last year. We’ve probably all been inside a Walmart and we know the branding they try to establish: low prices.  Their low prices may not always have this effect on their customers: https://www.youtube.com/watch?v=ePi1Mqgx6PQ, but you get the idea. When Sam Walton opened the first Walmart, his strategy was to have the lowest possible prices and make up for low margins with high volume sales.  This continues to be the case today as seen in this flow diagram: http://3.bp.blogspot.com/-PwzX7RARRaQ/TVbarVGxfPI/AAAAAAAAABw/0ZVgzfTngMI/s1600/%2BWalmartSupplyChain3.jpg.  This is one of the places where Walmart has established inimitability.  A local store cannot possibly match Walmart’s prices because they cannot sell the same volume as the international chain.  This is shown in an estimation that a cart of groceries if 15% cheaper at Walmart.   This means that Walmart ends up putting many of its competitors out of business.   According to one economist, three retail stores go out of business within two years of a new Walmart opening its doors.

But, there is not any one secret to Walmart’s low prices. One key is that Walmart is able to establish strong relationships with vendors because of its market power.  Walmart can guarantee a high volume of sales for a sustained period of time, giving vendors an incentive to offer the lowest possible prices.

Another key is Walmart’s supply chain.  Walmart is only a retailer, not a manufacturer. Thus as a retailer, Walmart uses the logistics method of cross-docking.  Wikipedia defines cross-docking as “a practice in logistics of unloading materials from an incoming semi-trailer truck or railroad car and loading these materials directly into outbound trucks, trailers, or rail cars, with little or no storage in between.” Similar to Zara, Walmart aims to have items in inventory for a minimal amount of time, going from manufacturer to the shelves rapidly.  By having items go almost directly from inbound to a warehouse to outbound to a store, this reduces unnecessary transportation costs and wasted time of items going through inventory.

Walmart also makes good use of technology to enhance its supply chain.  In its early days, Walmart encouraged manufacturers to adopt a universal bar code system.  With this in place, it became fundamentally easier to use barcodes to keep track of inventory and customer trends.  One article from the University of San Francisco says Walmart has “the largest information technology infrastructure of any private company in the world.”  Due to this, Walmart can make precise predictions on customer preferences and demands, track and adjust inventories accordingly, and thus make efficient delivery routes.  This all translates to higher quantity and variation of items being available to customers more quickly.

Within the last 8 years, Walmart has required that radio frequency identification technology (or RFID) be used by its vendors on products.  This technology “uses radio frequencies to transmit data stored on small tags attached to pallets or individual products.”  (http://money.howstuffworks.com/wal-mart.htm)  This system allows for the “tags” to store far more data than can barcodes.  The quoted article cites a University of Arkansas study when it claims that there was a 16% decrease in items going out of stock when this technology was implemented in Walmart stores, within the first eight months.

The bigger Walmart becomes, the harder it becomes for other retailers to copy their strategy.  Walmart keeps its prices low through high sales volume, and it is hard to compete with the volume of such a massive company.  However, as Walmart continues to grow and sell more and more items around the world, they will need to continue to use technology to keep their supply chain fast, cheap, and efficient.  So far, they have been able to do this well and continue their monumental success.  But with the rate of technological turnover into todays’ business world, they will need to continue to stay on top of the movement in order to continue to hold a competitive advantage in the difficult realm of supply chaining.

If you want to learn more about Walmart, I suggest you watch this 97 minute movie about Walmart titled Walmart: The High Cost of Low Prices https://www.youtube.com/watch?v=Jazb24Q2s94.  Haha, just kidding, but it looks interesting.

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4 thoughts on “Walmart: Master of the Supply Chain

  1. This is clearly a well researched blog that expands on class topics. In particular, I liked how you took the idea of inimitability that we learned in the Zara lecture and applied this to Walmart. Great explanation of Walmart’s supply chain and business model, as well as links and flow diagram picture. One thing I would suggest for future blogs would be to include these pictures within the blog. This would certainly enhance your blog’s presentation. Also, your blog mentioned that Walmart uses different forms of technology in order to run such an efficient business model. Out of curiosity, do you think Walmart would be where it is today if it were not able to utilize these technological pratices? Do you forsee technology helping or hurting Walmart in the future?

    • Thanks for the comments! Personally, I think Walmart would not be nearly as successful without their use of technology. With the volume of items they put on their shelves, it would be extremely difficult to stay efficient and organized without a strong implementation of technology. Walmart’s efficiency is what allows it to undercut competitors on prices. As for the future, time will tell, but I would guess that Walmart realizes its need for technology and continues to try to stay ahead of the curve.

  2. Great post! This is incredibly well researched and thorough blog and you made some great connections to class topics. My only suggestion is making the post a little more visually appealing by embedding pictures and videos directly into the post. Specifically, the radio frequency technology is really impressive. Walmart obviously has their business strategy and supply chain to a t. It would be interesting, however, to look at the downside of such a major chain like Walmart. They hold immense market power and as you will see later, have a lot of negotiating power when it comes to supply chains. Is this power good or bad?

    • Thanks for the comments! Personally, I think their power is dangerous, as Walmart has been scrutinized in the past for labor violations, and they put many smaller retailers out of business. How do you feel about Walmart’s power?

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